In 2009, our commitment to strategic consistency and financial discipline allowed us to emerge from the worldwide financial crisis as a stronger company with sound organizational principles and a clear vision for the future. In this challenging economic environment, we undertook and successfully realigned our shareholding structure in Russia to take control of the largest assets in our company. With this transaction we were able to significantly lower the risk in the company’s debt profile and settle numerous contingent liabilities for deferred payment of purchase price and other items on the company’s balance sheet.

These achievements have made CEDC the largest vodka producer in the world and ensured the long-term stability of our capital structure. None of this would have been possible without the constant support we’ve received from our shareholders. On behalf of the entire Central European Distribution Corporation team: management, board of directors and employees, I would like to express my gratitude for your involvement in our company, which has helped us realize our objectives and create value for investors.

2009

We entered 2009 conscious of the difficult economic climate and deteriorating consumer demand but with a clear set of objectives to achieve; including the improvement of our margins through better product mix and cost savings, the renegotiation of our agreement with Lion Capital and other minority owners to acquire 100% ownership of the Russian Alcohol Group and the effective management of our cash flow and short-term liabilities. And despite excise tax increases and decreased consumer spending that triggered 5% and 10% drops in the spirit markets of Poland and Russia, respectively, we managed to fulfill our goals and increase our market share in our core markets.

We successfully re-launched our premium vodka brand, Palace, on the Polish market in 2009 in a newly designed bottle, which resulted in a 10% increase in sales despite the overall drop of the premium segment. In the Russian market, we continued our strategy of positioning our vodka brands at every 10-15 ruble price point and introduced two new vodkas in the lower mainstream category in the fall of the year, Gerbovaya and Urozhay.

Our exclusive import portfolio in Poland and Russia, continued to deliver strong results. We are especially pleased to see the continued strong growth in our wine business in Russia, which we believe will continue to accelerate with increased consumer demand behind the economic recovery that we are expecting in Russia. We also extended our cooperation with Gallo by signing an exclusive import agreement for Russia which gives us new opportunities in the growing market of new world wines in that region.

We were successful in raising debt and equity in 2009 to pay Lion Capital the remaining deferred payments we owed to them for the Russian Alcohol Group (RAG). This was a major event for us, because having full control of RAG put us in the driver’s seat to control our own destiny in this region and begin the process of integrating and realizing synergies from our two production businesses, Parliament and RAG. We were also able to redeem our 2012 Senior Secured Notes with the proceeds of the issue of our 2016 Senior Secured Notes, thereby dramatically extending our debt maturity profile and simplifying our capital structure. In addition, we were able to de-lever the balance sheet through the equity portion of the financing.

2010

In 2010, we are anticipating that economic conditions in our core vodka markets will stabilize in the first half of the year and that the expected GDP growth in Poland and Russia will, with time, lead to increased purchasing power for consumers. We believe the spirits market will remain flat in terms of volume, but we expect a further uplift in value in the second half of the year consistent with the expected economic recovery. We also believe in the mid-term that the recent government policies surrounding the spirit sector in Russia, including introduction of minimum price, will be favorable for the government to achieve its main ambition of reducing the grey market in Russia, which will be favorable for those of us working in the legal vodka market.

We plan to concentrate our current efforts primarily on organic growth and innovations, including the introduction of two new brands in our primary markets in the mainstream and sub premium segments. We would also like to place a stronger emphasis on our current exports and create new export opportunities, as we have begun the reorganization of our export teams in Poland and Russia into one comprehensive unit. Zubrowka, Green Mark and Parliament are three distinctive brands, with unique identities, rich history and tradition, with appeal to consumers around the world searching for authentic products. We feel the newly signed contract with Remy Cointreau in the United States begins a new stage of Zubrowka development in the United States, the most profitable vodka market in the world. We also see great potential for our Russian brands on the Ukrainian market. We are also excited about what we believe are interesting opportunities for the development of our brandy business in Russia.

With our major Russian production acquisitions completed, we can continue work on reducing our net debt to EBITDA ratio, targeting 2.5 to 3 times by 2011 year-end. We are focused on driving strong cash flow and manage our short term liabilities efficiently and will continue to look at asset disposals that we view as non-core for our long term growth strategy.

Looking forward

Coming out of a challenging 2009 and looking forward to 2010, we are pleased to see CEDC among the global leaders in vodka. We believe that the future growth of our company will continue to come from our expanding vodka portfolio as well as from our exclusive import portfolio of premium wines and spirits, and the development of new brands that meet consumers’ expectations.

William V. Carey
Chairman